Sydney is no longer the nation’s most expensive capital city to rent a house according to a report showing rental prices dropping for the first time in 12 years.

Canberra’s house rental rates have surpassed Sydney after the average cost of renting a house in the NSW capital dropped 1.8 per cent in the last year, according to the Domain Rental Report.

Median rents in the Harbour City have dipped to $540 a week for houses, $20 less than Canberra, and $530 a week for units.

Domain Senior Research analyst Dr Nicola Powell said house rental rates were now on par with 2016 prices and could change the dynamic between renters and landlords.

“Sydney is no longer the nation’s most expensive capital city to rent a house,” Dr Powell said.

“We expect rental supply to increase further in 2019, putting tenants in the driver’s seat.

Tenants will find greater bargaining power as rising supply keeps pressure on rents, providing strong grounds to negotiate lease terms.”

Unit rents were also declining and for the first time since Domain rental records began in 2004 have fallen for two consecutive quarters.

The cost of renting a unit is now at 2017 levels.

Despite the fall in Sydney, prices remain higher than the national average of $446 per week for houses, and $455 for units.

While this is welcome news for renters, Dr Powell said the fall could turn property developers off Sydney.

“Despite improved yields, we expect many investors will look to other capital city markets in 2019, with the prospect of short-term capital gains unlikely,” she said.

“However, slowing interstate and overseas migration could offset this impact.”

-ABC